<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Black Hills Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1997
---------------------
To the Shareholders of
Black Hills Corporation
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of Common
Stock of BLACK HILLS CORPORATION (herein called the Company) will be held at the
Holiday Inn Rushmore Plaza Hotel, 505 North Fifth Street, Rapid City, South
Dakota, on Tuesday, May 20, 1997, commencing at 9:30 A.M., for the following
purposes:
1. To elect three Class II Directors to serve until the Annual Meeting of
Shareholders in 2000;
2. To ratify the appointment of Arthur Andersen LLP to serve as independent
auditors of the Company for the year 1997;
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on March 7, 1997, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
All shareholders are cordially invited to attend the meeting. Please
complete, date, sign, and return the accompanying form of proxy. A return
envelope is enclosed which requires no postage if mailed in the United States.
We appreciate your giving this matter your prompt attention.
By Order of the Board of Directors
ROXANN R. BASHAM
CORPORATE SECRETARY
Dated: March 21, 1997
<PAGE>
[LOGO]
625 NINTH STREET
RAPID CITY, SOUTH DAKOTA 57701
------------------------
PROXY STATEMENT
---------------------
A proxy in the accompanying form is solicited by the Board of Directors of
Black Hills Corporation, a South Dakota corporation (the Company), to be voted
at the Annual Meeting of Shareholders of the Company to be held Tuesday, May 20,
1997, and at any adjournment thereof.
The enclosed form of proxy, when executed and returned, will be voted as set
forth therein. Any shareholder signing a proxy has the power to revoke the same
in writing, addressed to the Secretary of the Company, or in person at the
meeting at any time before the proxy is exercised.
All shares represented by valid, unrevoked proxies will be voted at the
Annual Meeting. Shares voted as abstentions on any matter (or as "withhold
authority" as to Directors) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
meeting and as unvoted, although present and entitled to vote, for purposes of
determining the approval of each matter as to which the shareholder has
abstained. If a broker submits a proxy which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, those shares will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the meeting, but
will not be considered as present and entitled to vote with respect to such
matters.
The Company will bear all costs of the solicitation. In addition to
solicitation by mail, officers and employees of the Company may solicit proxies
by telephone, telegraph, or in person. Kissel-Blake Inc. has been retained by
the Company to assist in the solicitation of proxies at an anticipated cost of
$2,500 plus out-of-pocket expenses. Also, the Company will, upon request,
reimburse brokers or other persons holding stock in their names or in the names
of their nominees for reasonable expenses in forwarding proxies and proxy
material to the beneficial owners of stock.
This Proxy Statement and the accompanying form of proxy are to be first
mailed on March 21, 1997. The Company's Annual Report to Shareholders and Form
10-K for the year 1996 is being mailed to shareholders with this proxy
statement.
VOTING RIGHTS AND PRINCIPAL HOLDERS
Only shareholders of record at the close of business on March 7, 1997, will
be entitled to vote at the meeting. The outstanding voting stock of the Company
as of such record date consisted of 14,456,833 shares of Common Stock.
Each outstanding share of Common Stock is entitled to one vote. Cumulative
voting is permitted in the election of directors. Each share is entitled to
three votes, one each for the election of three directors, and the three votes
may be cast for a single person or may be distributed among two or three
persons.
The Company is not aware of any person or group who is the beneficial owner
of more than five percent of the Company's Common Stock.
2
<PAGE>
ITEM I
ELECTION OF DIRECTORS
In accordance with the Bylaws and Article Fifth of the Restated Articles of
Incorporation, the Company's directors are elected to three classes of staggered
terms consisting of three years each. At this Annual Meeting of Shareholders,
three directors will be elected to Class II of the Board of Directors to hold
office for a term of three years until the Annual Meeting of Shareholders in
2000 and until their respective successors shall be duly elected and qualified.
Each of the nominees for director is presently a member of the Board of
Directors of the Company. The proxy attorneys will vote your stock for the
election of the three nominees for director listed below, unless otherwise
instructed. If, at the time of the meeting, any of such nominees shall be unable
to serve in the capacity for which they are nominated or for good cause will not
serve, an event which the Board of Directors does not anticipate, it is the
intention of the persons designated as Proxy Attorneys to vote, at their
discretion, for nominees to replace those who are unable to serve. The
affirmative vote of a majority of the common shares present and entitled to vote
with respect to the election of directors is required for the election of the
nominees to the Board of Directors.
The following information, including principal occupation or employment for
the past five or more years, is furnished with respect to each of the following
persons who are nominated as Class II directors, each to serve for a term of
three years to expire in 2000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOLLOWING
NOMINEES:
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION UNTIL 2000 ANNUAL MEETING -- CLASS II
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------- ---------
<S> <C>
DANIEL P. LANDGUTH, 50 1989
Chairman, President, and Chief Executive Officer of the Company; Director,
Rapid City Regional Hospital, Rapid City, South Dakota
DALE E. CLEMENT, 63 1979
Senior Vice President -- Finance of the Company and subsidiaries
JOHN R. HOWARD, 56 1977
President, Industrial Products, Inc. (an industrial parts distributor);
Director, Norwest Bank South Dakota, N.A.
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE AT 1998 ANNUAL MEETING -- CLASS III
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------- ---------
<S> <C>
ADIL M. AMEER, 44 1997
President and Chief Executive Officer, Rapid City Regional Hospital, Rapid
City, South Dakota
THOMAS J. ZELLER, 49 1997
President, RE/SPEC Inc. (a consulting and engineering firm) since December
1994; Vice President -- Finance and Treasurer, RE/SPEC Inc. 1982 to 1994
EVERETT E. HOYT, 57 1991
President and Chief Operating Officer of Black Hills Power and Light
Company
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE AT 1999 ANNUAL MEETING -- CLASS I
NAME, AGE, PRINCIPAL OCCUPATION FOR DIRECTOR
LAST FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------- ---------
<S> <C>
GLENN C. BARBER, 63 1984
President and Chief Executive Officer, Glenn C. Barber & Associates Inc. (a
general construction company)
BRUCE B. BRUNDAGE, 61 1986
President and Director, Brundage & Company (a firm specializing in
corporate financing), Englewood, Colorado; Director, Vicorp Restaurants,
Inc., Denver, Colorado
KAY S. JORGENSEN, 45 1992
South Dakota Legislative Representative, Lawrence County, South Dakota;
Business Consultant, Spearfish, South Dakota
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
As of February 28, 1997, the following table sets forth the beneficial
ownership of Common Stock of the Company for each Director, each executive
officer named in the Summary Compensation table herein, and all Directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
AND NATURE OF
BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER (1)
- -------------------------------------------------- -----------------------
<S> <C>
Adil M. Ameer..................................... 118(2)
Glenn C. Barber................................... 3,994
Bruce B. Brundage................................. 3,615(3)
Dale E. Clement................................... 13,686(4)
John R. Howard.................................... 11,242
Everett E. Hoyt................................... 5,452(4)
Kay S. Jorgensen.................................. 813
Daniel P. Landguth................................ 9,341(4)
Thomas J. Zeller.................................. 168(5)
All Directors and executive officers
as a group....................................... 59,285(4)
</TABLE>
- ------------------------
(1) Represents outstanding Common Stock beneficially owned both directly and
indirectly as of February 28, 1997. The Common Stock interest of each named
person and all Directors and executive officers as a group represents less
than one percent of the aggregate amount of Common Stock issued and
outstanding. Except as indicated by footnote below, the beneficial owner
possesses sole voting and investment powers with respect to the shares
shown.
(2) Includes 100 shares owned jointly with Mr. Ameer's spouse as to which he
shares voting and investment authority.
(3) Includes 3,600 shares owned by Brundage & Co. Pension Plan and Trust of
which Mr. Brundage is the Trustee with sole voting and investment authority.
(4) Includes Common Stock held by the Trustee of the Company's Retirement
Savings Plan (401K) of which the Trustee has sole voting and investment
authority as follows: Mr. Clement 2,155 shares, Mr. Hoyt 4,405 shares, Mr.
Landguth 3,207 shares, and all Directors and executive officers as a group
14,094 shares.
(5) Includes 150 shares owned jointly with Mr. Zeller's spouse as to which he
shares voting and investment authority.
4
<PAGE>
Based solely upon a review of Company records and copies of reports on Form
3, 4 and 5 furnished to the Company, the Company believes that during 1996 all
persons subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, filed the required reports on a timely basis.
THE BOARD AND COMMITTEES
The Executive Committee is comprised of Adil M. Ameer, Glenn C. Barber, John
R. Howard, Daniel P. Landguth, and Thomas J. Zeller with Mr. Landguth serving as
Chairperson. The Committee exercises the authority of the Board of Directors in
the interval between meetings of the Board, recommends to the Board of Directors
persons to be elected as officers, and recommends persons to be appointed to
Board Committees. The Executive Committee held three meetings during 1996.
The Compensation Committee is comprised of Adil M. Ameer, Glenn C. Barber,
Bruce B. Brundage, John R. Howard, Kay S. Jorgensen, and Thomas J. Zeller with
Ms. Jorgensen serving as Chairperson. The Committee performs functions required
by the Board of Directors in the administration of all federal and state
statutes relating to employment and compensation, recommends to the Board of
Directors compensation for officers, and considers and approves the Company's
compensation program including benefits, stock option plans and stock ownership
plans. The Compensation Committee held five meetings in 1996.
The Audit Committee is comprised of Glenn C. Barber, Bruce B. Brundage, Kay
S. Jorgensen, and Thomas J. Zeller, with Mr. Barber serving as Chairperson. The
Committee annually recommends to the Board of Directors an independent
accounting firm to be appointed by the Board for ratification by the
shareholders, reviews the scope and results of the annual audit including
reports and recommendations of the firm, reviews the Company's internal audit
function, and periodically confers with the internal audit group, management of
the Company, and its independent accountants. The Audit Committee held two
meetings in 1996.
The Nominating Committee is comprised of Adil M. Ameer, Bruce B. Brundage,
John R. Howard, Kay S. Jorgensen, and Daniel P. Landguth, with Mr. Howard
serving as Chairperson. The Committee recommends to the Board of Directors
persons to be nominated as directors or to be elected to fill vacancies on the
Board. The Bylaws require that an outside director serve as Chairperson of the
Committee. The Nominating Committee held two meetings in 1996.
Pursuant to the Company's Bylaws, nominations from shareholders for Board
membership will be considered by the Nominating Committee. Shareholders who wish
to submit names for future consideration for Board membership should do so in
writing prior to November 21, 1997, addressed to Nominating Committee, c/o
Corporate Secretary, Black Hills Corporation, P.O. Box 1400, Rapid City, South
Dakota 57709.
Members of the Committees referred to herein are designated by the Board of
Directors upon recommendation of the Executive Committee each year at a meeting
held following the Annual Meeting of Shareholders.
The Board of Directors held eight meetings during 1996. Each director
attended no less than 90 percent of the aggregate of the total number of Board
meetings and Committee meetings on which the director served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is solely comprised of the following outside
directors, Adil M. Ameer, Glenn C. Barber, Bruce B. Brundage, John R. Howard,
Kay S. Jorgensen, and Thomas J. Zeller.
5
<PAGE>
As of January 1, 1997, Mr. Ameer was elected director of Black Hills
Corporation and serves as a member of its Compensation Committee. Mr. Landguth,
Chairman, President and Chief Executive Officer of the Company, is also a
director of Rapid City Regional Hospital, a non-profit organization of which Mr.
Ameer is President and Chief Executive Officer. Mr. Landguth is serving a six
year term on the Rapid City Regional Hospital Board of which three years are
remaining. Mr. Ameer and Mr. Landguth will not participate in any compensation
decisions involving each other.
Mr. Howard is also a director of Norwest Bank South Dakota, N.A. of which
the Company has a $7 million line of credit. During 1996, Norwest Bank South
Dakota, N.A. participated in short-term loans to the Company of up to $2 million
at an interest rate of 1/4 percent less than the prime rate. Total interest
charges for the year were minimal.
Norwest Bank Minnesota, N.A. is the Trustee and Paying Agent for the
Company's Pollution Control and Industrial Development Revenue Bonds and the
Transfer Agent, Registrar, and Dividend Disbursing Agent for the Company's
Common Stock. The Company paid approximately $57,000 for these services in 1996
plus out of pocket expenses.
Norwest Bank South Dakota and Norwest Bank Minnesota are subsidiaries of
Norwest Corp. Mr. Howard does not have a direct relationship with Norwest
Minnesota.
DIRECTORS' FEES
Directors who are not officers of the Company receive an annual fee of
$12,000 plus a fee of $600 for each board meeting and committee meeting attended
providing such committee meetings are substantive in nature and content.
The Board of Directors are required to beneficially own 100 shares of Common
Stock when they are initially elected a Director and to apply at least 50
percent of his or her retainer toward the purchase of additional shares until
the Director has accumulated at least 2,000 shares of Common Stock.
DIRECTORS' RETIREMENT PLAN
The Company has a Retirement Plan for those directors who are not otherwise
employed by the Company (outside directors). The monthly benefit is $1,000
payable for the number of months the outside director served or for 120 months,
whichever is less. The monthly benefits commence at the earliest of (1) the
first full complete month the outside director is 60 years of age or more and is
no longer a director of the Company or (2) the first full month after the death
of the outside director or former outside director. The Board of Directors may
withdraw retirement benefits for any outside director dismissed for cause. The
monthly benefit is paid to the participating director, or if deceased, the
director's designated beneficiary, and if none, his or her estate.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board on executive compensation.
The components of the Company's executive compensation program consists of a
base salary, short-term incentive compensation comprised of two components (an
incentive gainsharing bonus and results compensation) and long-term incentive
compensation in the form of stock options. The mix of base salary, incentive
bonus, results compensation, and stock options reflects the Company's goals of
attracting and retaining highly qualified and motivated managers, recognizing
and rewarding outstanding performance, fostering a cohesive management team, and
having a portion of compensation contingent upon the performance of the Company
and linked to the mutual interest of the Company's shareholders.
6
<PAGE>
The Committee makes annual recommendations to the Board concerning the base
salary, incentive gainsharing bonus, and results compensation for the Chief
Executive Officer and each of the other executive officers of the Company.
Recognizing a market based compensation structure, the Committee strives to
ensure that competitive salary ranges and base salaries are being maintained.
The Committee also grants stock options to key employees and determines the
amount, terms and conditions of each of the awards.
In 1995 the Committee retained the services of the internationally known
firm, Hewitt Associates, to review and evaluate the Company's compensation
program as compared with companies within its own industry including data from
the Edison Electric Institute, the trade association of investor-owned electric
utilities, and with companies of comparable size and capitalization. The Hewitt
report indicated that the executive compensation was substantially below
competitive levels due to low competitive bonus award levels and the lack of a
long-term incentive plan.
As a result of this study the Board of Directors adopted, and the
shareholders approved, at the 1996 Annual Meeting the Black Hills Corporation
1996 Stock Option Plan. During 1996 the Committee granted 14,400 stock options
to the Chief Executive Officer and 6,000 stock options to each of the other
executive officers.
The Company's position is to establish a market salary level for each salary
range that is at or near the median (50th percentile) of the range of salaries
of comparable companies surveyed. A performance matrix system is used in
determining the percentage of salary increase taking into account the
performance rating for the individual officer and the relationship of the
officers current salary to market. An outstanding performance rating is given
when there is extraordinary and exceptional accomplishment, results are far in
excess of requirements, and demanding objectives are attained. A superior
performance rating indicates results are well above the expected level and the
individual was successful in accomplishing challenging objectives. Competent
performance ratings are given when all position requirements are met, the
individual consistently performs the job in a satisfactory manner, and realistic
objectives are obtained. Base salary increases in 1996 for the Company's
officers ranged from 3 percent to 7 percent.
In April 1996, the Compensation Committee granted the Chief Executive
Officer a superior rating based on the successful completion of Neil Simpson
Unit #2 ahead of schedule and under budget, the related successful rate
settlements, and the increase in dividends and earnings. The Compensation
Committee approved a 5 percent base salary increase in the amount of $10,116 for
the Chief Executive Officer. The increase to the base salary brings the Chief
Executive Officer's base salary to 101 percent of market as determined by wage
surveys. Consolidated earnings per share in 1995 was $1.78 compared to $1.66 in
1994 and dividends increased 3.0 percent.
The Company currently maintains a variety of employee benefit plans and
programs in which its executive officers may participate, including the
gainsharing program, the results compensation program, the retirement savings
(401k) plan, the pension plan, and the Pension Equalization Plan. With the
exception of the Pension Equalization Plan (PEP), these benefit plans and
programs are generally available to all employees within the Company.
The Executive Gainsharing Program is one of three sections of a Company wide
gainsharing program. The goals of the Executive Gainsharing Program support the
interests of the customer and shareholder. This is accomplished through
increased cost containment and operating efficiencies which in the end result
reduce costs and increase earnings. The program for 1996 consisted of a safety
goal, a reduction in budgeted operating expenses, and an individual performance
related goal. In 1996 the safety goal was not met; there was a 2.1 percent
favorable variance in operating expenses, and the individual performance related
goals were met resulting in a 2 percent gainshare award in 1997 based on 1996's
program.
7
<PAGE>
The Results Compensation Program was designed to recognize and reward the
contribution that group performance makes to corporate success. All regular
full-time and regular part-time non-bargaining union employees are eligible to
participate in the program. The local union IBEW, 1250, through its contract
negotiations elected not to participate in the Results Compensation Program. The
program has two key financial goals, a business unit goal and a corporate goal.
The business unit goal is based upon the percentage of operating income for the
respective business unit which exceeds budgeted amounts. The corporate goal is
based upon the percentage of consolidated earnings per share which exceeds
targeted amounts. Each goal is weighted 50 percent. The maximum bonus which can
be paid is 8 percent. The executive officers earned a results compensation bonus
of 6.1 percent in 1996 which was paid in 1997. The 6.1 percent bonus was
comprised of a 2.1 percent bonus for the business unit goal and 4 percent for
the corporate goal. Company wide bonuses ranged from 4 percent to 8 percent.
It is the objective of the Company to pay its executives a fair salary,
based on the comparable pay of similar types of companies in relation to
achieving corporate, business unit, and individual performance objectives.
COMPENSATION COMMITTEE
Kay S. Jorgensen, Chairperson Adil M. Ameer Glenn C. Barber
Bruce B. Brundage John R. Howard Thomas J. Zeller
The following table is furnished for the fiscal year ended December 31,
1996, with respect to the Chief Executive Officer of the Company and the
executive officers whose salary and bonus compensation for 1996 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND ---------------------- OPTIONS
PRINCIPAL POSITION YEAR SALARY BONUS (1) GRANTED
- -------------------------------------------------------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Daniel P. Landguth 1996 $ 208,127 $ 17,320 14,400
Chairman, President, and Chief Executive Officer of the 1995 197,516 6,397 --
Company and subsidiaries 1994 188,110 10,180 --
Everett E. Hoyt 1996 $ 137,540 $ 11,705 6,000
President and Chief Operating Officer of Black Hills 1995 132,845 6,962 --
Power and Light Company 1994 128,365 6,945 --
Dale E. Clement 1996 $ 133,164 $ 11,124 6,000
Senior Vice President -- Finance of the Company and 1995 129,910 4,173 --
subsidiaries 1994 127,363 5,582 --
</TABLE>
- ------------------------
(1) Bonus amounts include amounts earned under the Results Compensation Program
and the Executive Gainshare Program, cash bonus programs for Company
employees based on the attainment of predetermined profitability measures.
8
<PAGE>
BLACK HILLS CORPORATION STOCK OPTION GRANTS IN 1996 (1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE PRICE VALUE (2)
- --------------------------------------------------- ----------- --------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Daniel P. Landguth................................. 14,400 25.8% $ 25.00 11/22/06 $ 7,056
Everett E. Hoyt.................................... 6,000 10.6% $ 25.00 11/22/06 $ 2,940
Dale E. Clement.................................... 6,000 10.6% $ 25.00 11/22/06 $ 2,940
</TABLE>
- ------------------------
(1) Options vest annually in installments of 33 percent per year beginning on
the first anniversary of the date of grant. All options become fully vested
if a change in control occurs.
(2) The Black-Scholes option pricing model was used in determining the present
value of the options granted. The assumptions utilized in the Black-Scholes
model are as follows: 17.66 percent for expected volatility; 6.15 percent
for risk free rate of return; 5.5 percent for dividend yield and 10 years
for the time of exercise.
STOCK OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/96 12/31/96 EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE (2)
- ---------------------------------------- ----------------------- --------------------------
<S> <C> <C>
Daniel P. Landguth...................... -0-/14,400 -0-/$45,000
Everett E. Hoyt......................... -0-/6,000 -0-/$18,750
Dale E. Clement......................... -0-/6,000 -0-/$18,750
</TABLE>
- ------------------------
(1) No options were exercisable during 1996.
(2) Value of unexercisable options is the market value of the shares at year end
minus the exercise price.
RETIREMENT PLANS
The Company has a defined benefit retirement plan (Pension Plan) for its
employees. The Pension Plan provides benefits at retirement based on length of
employment service and average monthly pay in the five consecutive calendar
years of highest earnings out of the last ten years. Employees do not contribute
to the Pension Plan. The amount of annual contribution by the employers to the
Pension Plan is based on an actuarial determination. Accrued benefits become 100
percent vested after an employee completes five years of service.
The Company also has a Pension Equalization Plan (the PEP), a nonqualified
(benefits are not tax deductible until paid) supplemental plan, which is
designed to provide the higher paid executive employee a retirement benefit
which, when added to social security benefits and the pension to be received
from the Pension Plan, will approximate retirement benefits being paid by other
employers to its employees with like executive positions. The employee's pension
from the qualified pension plan is limited under the current law to not exceed
$125,000 annually and the compensation taken into account in determining
contributions and benefits cannot exceed $160,000. The amounts of deferred
compensation paid under nonqualified plans such as the PEP are not subject to
the limits. A participant under the PEP does not qualify for benefits until the
benefits become vested under a vesting schedule -- 20 percent after three years
of employment under the plan increasing up to 100 percent vesting after eight
years of employment under the plan. No credit for past service is granted under
the PEP. The annual benefit is 25 percent of the employee's average earnings (if
salary was less than two
9
<PAGE>
times the Social Security Wage Base) or 30 percent (if salary was more than two
times the Social Security Wage Base) times the vesting percentage. Average
earnings are normally an employees average earnings for the five highest
consecutive full years of employment during the ten full years of employment
immediately preceding the year of calculation. The annual PEP benefit is paid on
a monthly basis for 15 years to each participating employee and if deceased to
the employee's designated beneficiary or estate, commencing at the earliest of
death or when the employee is both retired and 62 years of age or more.
In the event that at the time of a Participant's retirement from the Company
the Participant's salary level exceeds the qualified pension plan annual
compensation limitation of $160,000, then the Participant shall receive an
additional benefit which is measured by the difference between the monthly
benefit which would have been provided to the participant under the Company's
Pension Plan as if there were no annual compensation limitation and the monthly
benefit to be provided to the Participant under the Pension Plan.
Participants in the PEP are designated by the Board of Directors upon
recommendation of the Chief Executive Officer. Selection is based on key
employees as determined by management and consideration of performance rather
than salary based only. The minimum salary component applied in the selection
process is the maximum annual Social Security taxable wage base which is
presently at $65,400.
RETIREMENT BENEFITS
The following table illustrates estimated annual benefits payable under the
Pension Plan and the PEP to employees who retire at the normal retirement date.
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------------------------------
ANNUAL PAY 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ---------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$125,000.................... $ 59,595 $ 69,044 $ 78,492 $ 87,941 $ 97,389
150,000.................... 79,345 90,794 102,242 113,691 125,139
175,000.................... 92,845 106,294 119,742 133,191 146,639
200,000.................... 106,345 121,794 137,242 152,691 168,139
225,000.................... 119,845 137,294 154,742 172,191 189,639
</TABLE>
Estimated annual benefits payable to officers named below at age 65 from all
sources are as follows: Daniel P. Landguth, 35 yrs. -- $173,653; Dale E.
Clement, 33 yrs. -- $92,463(1); Everett E. Hoyt, 31 yrs. -- $87,845(1).
The benefits in the foregoing table were calculated as a straight life
annuity. Amounts shown are exclusive of Social Security benefits and include
benefits from both the Pension Plan and from the PEP assuming a 100 percent
vested interest in the PEP.
- ------------------------
(1) Such amounts are adjusted for benefits applicable to service for prior
employment.
EMPLOYEES' STOCK PURCHASE PLAN
Employees of the Company and its subsidiaries are eligible to participate in
the Employees' Stock Purchase Plan, as approved by the shareholders at the 1987
Annual Meeting under which offerings of the Company's Common Stock, at the
discretion of the Board, are made to employees at a price equal to 90 percent of
the closing sale price on the New York Stock Exchange on the date of the
offering. An offering was extended to employees in 1996 and officers subscribed
to 1,780 shares at a price of $20.93 per share. Shares are held in nominee name
until subscriptions are paid for in full.
10
<PAGE>
RETIREMENT SAVINGS PLAN
The Company has a Retirement Savings Plan under Section 401(k) of the
Internal Revenue Code of 1954, as amended, which permits employees of the
Company and its subsidiaries, including officers, to elect to invest up to 15
percent of their eligible earnings on a pre-tax basis into an investment fund
subject to limitations imposed by the Internal Revenue Code. The Company makes
no contributions to the Plan.
Distribution from the fund will be made to employees at termination of
employment, retirement, death, or in case of hardship. No amounts were paid or
distributed pursuant to the Retirement Savings Plan to the individuals named
herein nor to the officers as a group.
The Trustee for the Retirement Savings Plan (401(k) Plan) has voting power
with respect to shares held in the name of the Trustee of the Plan.
SEVERANCE AGREEMENTS
The Company has entered into change of control severance agreements
("Severance Agreements") with each of its executive officers. The Severance
Agreements provide for certain payments and other benefits to be payable upon a
Change in Control and a subsequent termination of employment, either involuntary
or for a Good Reason.
A Change in Control is defined as: (i) an acquisition of 30 percent or more
of the common stock of the Company (except for certain defined acquisitions,
such as acquisition by employee benefit plans, the Company itself, or any
subsidiary); or (ii) members of the Incumbent Board at the time the agreements
were executed cease to constitute at least two-thirds of the members of the
Board, with an Incumbent Board being defined at those individuals consisting of
the Board on the date the Agreement was executed and any other directors elected
subsequently whose election was approved by the Incumbent Board; or (iii)
approval by the shareholders of the Company of a merger, consolidation, or
reorganization; liquidation or dissolution; or agreement for sale or other
disposition of all or substantially all of the assets of the Company (with
exceptions for transactions which do not involve an effective change in control
of voting securities or Board membership, and transfers to subsidiaries or sale
of subsidiaries); and (iv) all regulatory approvals required to effect a Change
in Control have been obtained.
A Good Reason for termination which would trigger payment of benefits is
defined to include (i) a change in the Executive's status, title, position or
responsibilities, (ii) a reduction in the Executive's annual compensation or any
failure to pay the Executive any compensation or benefits to which he is
entitled within 7 days of the date due, (iii) any material breach by the Company
of any provisions of the Severance Agreement, (iv) requiring the Executive to be
based outside a 50-mile radius from Rapid City, South Dakota; or (v) failure of
the Company to obtain an agreement from any successor company to assume and
agree to perform the Severance Agreement. The Severance Agreement with the Chief
Executive Officer ("CEO") also contains an optional Window Period, defined as a
30-day period of time beginning on the one-year anniversary after the Change in
Control, during which time the CEO may terminate for any reason and receive the
payments and benefits.
Upon a Change in Control, the Executive will have an employment contract for
three-year period (but not beyond age 65), denominated the "Employment Term."
During the Employment Term, the Executive shall receive annual compensation at
least equal to the highest rate in effect at any time during the one-year period
preceding the Change in Control and shall also receive employment welfare
benefits, pension benefits, and supplemental retirement benefits on a basis no
less favorable than those received prior to the Change in Control.
If the Executive's employment with the Company is terminated during the
Employment Term, involuntarily or for a Good Reason (or by the CEO for any
reason during a Window Period), then the
11
<PAGE>
Executive is entitled to the following benefits: (i) severance pay equal to 2.99
times Executive's five-year average taxable compensation; provided that the
foregoing payment is subject to proportionate reduction based upon when
termination takes place during the Employment Term and based upon a ratio of
Executive's Employment Term to 36 months; and (ii) continuation of employee
welfare benefits for the remainder of the Employment Term (with an offset for
similar benefits received) along with additional credited service under the
Pension Equalization Plan and Pension Plan equal to the remainder of the
Employment Term.
The Severance Agreement contain a "cap" provision which reduces any amounts
payable to an amount which would prevent any payments from being nondeductible
under the Internal Revenue Code. The Severance Agreements provide for
reimbursement of legal fees and expenses of the Executive incurred after the
Change in Control by the Executive in seeking to obtain or enforce any benefits
provided by the Severance Agreement. The Executive is not required to mitigate
the amount of any payment or benefit by seeking other employment or otherwise,
and the payments or benefits are not reduced whether or not the Executive
obtains other employment and/or benefits (except for employee welfare benefits).
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative shareholder return on the Company's
Common Shares for the last five fiscal years with the cumulative total return of
the S&P 500 Index and the Edison Electric Institute Electric Index, (EEI
Electric Index) over the same period (assuming the investment of $100 on
December 31, 1991, and the reinvestment of all dividends).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURN*
AMONG BLACK HILLS CORPORATION,
THE S & P 500 INDEX
AND THE EEI 100 INDEX OF
INVESTOR-OWNED ELECTRICS INDEX
BLACK HILLS EEI 100 INDEX OF
CORPORATION S & P 500 INVESTOR-OWNED ELECTRICS
<S> <C> <C> <C>
1991 $ 100 $ 100 $ 100
1992 104 108 108
1993 91 118 120
1994 91 120 106
1995 112 165 139
1996 134 203 140
</TABLE>
12
<PAGE>
ITEM II
APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP, independent public accountants, conducted
the audit of the Company and its subsidiaries for 1996. Representatives of
Arthur Andersen LLP will be present at the Annual Meeting and will have the
opportunity to make a statement, if they desire to do so, and to respond to
appropriate questions.
Audit services performed by Arthur Andersen LLP during 1996 included audits
of the financial statements of the Company and its subsidiaries and analysis of
interim financial information.
The Board of Directors, on recommendation of the Audit Committee and subject
to ratification by shareholders, has appointed Arthur Andersen LLP to perform an
audit of the consolidated financial statements of the Company and its
subsidiaries for the year 1997 and to render their opinion thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP TO SERVE AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR 1997
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1998 Annual Meeting of
Shareholders must be received by the Secretary of the Company in writing at its
home offices at 625 Ninth Street, P.O. Box 1400, Rapid City, South Dakota 57709,
prior to November 21, 1997. Any proposal submitted must be in compliance with
Rule 14a-8 of Regulation 14A of the Securities and Exchange Commission.
ITEM III
TRANSACTION OF OTHER BUSINESS
The Board of Directors does not intend to present any business for action by
the shareholders at the meeting except the matters referred to in this Proxy
Statement. If any other matters should be properly presented at the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
thereon in accordance with the recommendations of the Board of Directors.
If a shareholder participates in the Company's Dividend Reinvestment and
Stock Purchase Plan, the proxy to vote shares of record will serve as
instructions to vote shares held in custody for the shareholder. Accordingly, as
Transfer Agent for shares of the Company's Common Stock, Norwest Bank Minnesota,
N.A. will cause shares held in the name of its nominee for the account of a
shareholder participating in the Plan to be voted in the same way as that
shareholder votes shares registered in their name. If shareholders do not vote
the shares registered in their name, shares held for their account in the Plan
will not be voted.
Please complete and sign the accompanying form of proxy whether or not you
expect to be present at the meeting and promptly return it in the enclosed
postage paid envelope.
By Order of the Board of Directors
ROXANN R. BASHAM
CORPORATE SECRETARY
Dated: March 21, 1997
13
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information required by Item 13, Financial and Other Information, of
Regulation 14-A is provided in the Company's Annual Report to Shareholders and
Form 10-K for the year ended December 31, 1996, which is incorporated by
reference into this Proxy Statement.
The Company's 1996 Annual Report to Shareholders and Form 10-K is being
mailed to Shareholders with this Proxy Statement.
PLEASE COMPLETE, SIGN AND RETURN PROMPTLY
THE ENCLOSED PROXY SO THAT YOUR STOCK MAY
BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
14
<PAGE>
BLACK HILLS CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 20, 1997 AT 9:30 A.M.
The undersigned hereby appoints Daniel P. Landguth, Dale E. Clement and
David E. Morrill, and any one or more of them, proxy attorneys, with full
substitution and revocation in each, to vote all shares of Common Stock of the
undersigned at the Annual Meeting of Shareholders of Black Hills Corporation to
be held on Tuesday, May 20, 1997 at 9:30 A.M., or at any adjournment thereof, as
follows:
1. Election of Class II Directors
Daniel P. Landguth, Dale E. Clement, / / FOR / / WITHHELD AUTHORITY
John R. Howard
(To withhold authority to vote for any individual nominee, write the
nominee's name in the space provided below. To cumulate votes so indicate.)
2. Ratify the appointment of Arthur / / FOR / / AGAINST / / ABSTAIN
Andersen LLP to serve as the Company's
independent auditors in 1997
If any other business is brought before the Meeting or any adjournment(s)
thereof, this Proxy will be voted in the discretion of the Appointed Proxies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTING EACH OF THE DIRECTORS AND
FOR PROPOSAL 2.
<PAGE>
THIS PROXY, SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE VOTED AS
DIRECTED. IF NO DIRECTION TO THE CONTRARY IS INDICATED IT WILL BE VOTED IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS.
Black Hills Corporation, as Administrator under the Company's Dividend
Reinvestment and Stock Purchase Plan, is instructed to execute a proxy with
identical instructions, for any shares held for my benefit.
Dated: ____________________________
___________________________________
(Signature)
___________________________________
(Signature)
Please sign exactly as name(s)
appear to the left. When signing in
fiduciary or representative
capacity, please add your full
title. If shares are registered in
more than one name, all holders
must sign. If the signature is for
a corporation, the handwritten
signature and title of an
authorized officer are required,
together with the full corporate
name.
PLEASE COMPLETE, DATE, SIGN AND
MAIL THIS PROXY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
